An industry consolidating is an industry commoditizing at the product/service level, and that’s obviously happening in telecom. The AT&T bid for T-Mobile has now been followed by a Level 3 bid for Global Crossing; both are subject to regulatory approval, of course.
The simple reason for all of this is disintermediation, the fact that operators have become disconnected from mounting service revenues from advanced services while still committed to carrying traffic and supporting connectivity. If you go back to the old days of Custom Local Access Special Services (CLASS) you may recall that even in the ‘90s it was this group of services (which included Call Forwarding, Voicemail, etc.) that generated the highest ROI, and you may also recall that it was this class of services that gave rise to what became known as the Advanced Intelligent Network (AIN) architecture for voice services.
Operators have been groping, for the past four or five years, for an architecture for the “Next-Generation Advanced Intelligent Network” or NGAIN. We’ve had a chance to review the approaches taken by operators in three major global regions, and there’s a significant amount of commonality in the ideas presented. What’s also interesting is that all of the players seem to be basing their NGAIN plans on cloud computing principles and software technology frameworks rather than on network equipment. IBM and Microsoft seem to be more an inspiration to vendors than Alcatel-Lucent or Cisco or Juniper. I won’t bore you with why I believe that’s the case; it’s not like I’ve not commented on this before.
Verizon’s Digital Media Services group announced its bid for an in-house NGAIN-like approach, focused on digital video. The company wants to offer everything from transcoding and content delivery network management to rights management and (of course) wireline and mobile multi-screen delivery. By grabbing all of these elements, Verizon raises the bar for competitors like (you guessed it) Level 3, who must now capitalize their own comparable approaches. The question that VDMS isn’t answering is whether the elements of their media architecture will be componentized enough and flexible enough to serve related applications that need information coding, rights management, LBS, etc.
In software, Adobe has launched a new (intermediate) version of its Creative Suite software, version 5.5, to attempt to reignite an upgrade cycle that the economic downturn largely killed. But at the same time they announced an annual and month-to-month license for all the CS5.5 components, creating something very like a SaaS model without the requirement for cloud hosting. The goal here is clear; expand the market for Adobe products by making them available to those who don’t expect to need the products every day forever. The risk is first that some of the current buyers might migrate to that occasional-use category and second that somebody will hack the licensing links and thus make a “temporary” license function forever.
I think this is an interesting development because it shows the strengths and limitations of the cloud as a software delivery framework. Software as a service is clearly more flexible as a model to support casual and occasional use of something, but the fact that performance of that “something” is then tied to central hosting and network connectivity is enough of a potential problem for some apps that players like Adobe are adopting a license-hosted rather than software-hosted delivery framework. Thus, it’s an endorsement of hosting rights rather than hosting functionality, and that could be profoundly interesting as an industry trend.
In telecom equipment, Cisco has added an MPLS optical blade to the CRS3 to give a nod to the overall operator desire for more agile optics in the core. In that respect, they now offer much of what Juniper announced with its own optically empowered label switch, the PTX. The difference in the two approaches is that Cisco’s does really seem to be architected for “supercore” applications, where Juniper’s PTX could in theory have a much broader mission, including in the metro and as a cloud connector. Since Juniper hasn’t acknowledged that particular mission set, though, the Cisco approach is at least a viable competitor and perhaps a better strategy for those who are committed to the CRS line already.
Google announced a rather sweeping reorg, one that gives its business-unit heads much greater autonomy and that suggests the company really does intend to transform itself from an ad-revenue-dependent OTT player to something broader. It doesn’t show much about what that broader something might be, though, and at the same time as the reorg, Page said that he was linking everyone’s bonuses for the year to Google’s social success. Given that most Google people will have nothing to do with that success, the move seems to undo some of the “independence” that the reorg would have accomplished. It also raises the question (asked by some commentators already) over whether Google is getting so obsessed with Facebook that it can’t see straight. All OTT plays are transient; there can be no enduring success exploiting fads. Google needs to develop an exploitation engine, not try to catch up on a social trend that’s already objectively peaked.
In geopolitics, the Middle East enters what we have all along believed the critical phase of its dissent. It’s easy to spawn revolution and hard to create governments and societies based on them. Egypt, whose hopeful revolution was a model for so many, now seems faced with an authoritarian military rule simply because it can’t transition out of it. Libyan rebels clearly cannot win without outside military intervention, and so the AU is trying to broker a peace that would be acceptable only under two conditions. First, if one presumed that the government believed that the West could sustain military action there indefinitely and prevent their routing rebels, and second if one presumed that the government didn’t intend to honor any peace and would simply wrap up the rebels when NATO stopped flying missions. A sad but not unexpected turn. Democracy requires more than a lack of authoritarianism to emerge, but the world hasn’t learned that, apparently.
Economically, the earnings season is about to start and we’ll see whether companies have been able to capitalize on some improved economic signs without hiking their costs and killing any bottom-line benefits of the improvement. Transitioning out of a cost-reduction-based earnings growth period into normal economic growth is tricky for a world where financial results can be viewed only myopically because of regulatory changes to kill off past bubble excesses. We’ll find out now whether the juggling has worked in the last quarter.